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Can you reckon our democratic process functions? Maybe similar to this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. Well, that’s how it once functioned. No longer.

The Emergence of Offshore Courts

Nowadays, foreign corporations, along with the billionaires that control them, can sue nation states for the policies they pass, at offshore tribunals made up of business advocates. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these bodies provide no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, including companies based in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel finds that a government measure might diminish the corporation’s expected profits, it may order damages of vast sums, running into billions.

These sums are based not on tangible damages but funds the tribunal officials determine the company might otherwise have made. The administration may have to rescind the measure. It will be discouraged from introducing similar legislation along the same lines, for fear of facing litigation.

A Process Running Rampant

Unprecedented levels of cases are being brought, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the decisions enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and often in conditions of profound opacity – inside international trade agreements.

A Real-World Case: The UK Coalmine

Last year, a conservation group achieved a major legal triumph at the high court. The justice found that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The new government then withdrew the licence the former government had approved. Currently, this legal outcome is under threat by an offshore tribunal answering to no one but the corporations petitioning it.

In August, a company whose final controllers are located in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had received permission to proceed. We have no idea how much this might be. What legal team is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has filed a claim against Luxembourg on these grounds, claiming a colossal sum: equivalent to half of state's annual revenue. Part of the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things were not possible. Years ago, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” An expert on this topic labelled critics of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Predictions that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has now materialised. In the current period, energy and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Firms have so far won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP